Another Thing I Want To Know…

Who was the idiot who switched my 401(k) last year to a 100% allocation to a managed bond fund? I mean, holy crap. It’s like someone somewhere said, “hmmm, how can we make sure this 401(k) achieves the smallest amount of performance humanly possible? I sure as Hell know I didn’t do this. I suspect whoever did this was the same person who hid my wallet earlier in the week. It’s all of a piece, you know?

(I suspect what happened was that the company administering the 401(k) funds was switched this last year and if we did not express a preference when the switchover happened, the account got knocked into the most conservative option possible. And I can’t remember if I expressed a preference. Bah.)

I called up my 401(k) provider and switched it to the S&P 500 Index fund option, which outperformed the bond fund 3-to-1 in the last year, so that’s taken care now. Now as long as the economy doesn’t entirely stall, I may still be able to retire sometime around age 80. Go, 401(k)! Go!

23 Comments on “Another Thing I Want To Know…”

  1. If you are allowed to do so, the best place to move money for growth is into the funds with foreign investments. Both Buffet and Gates have moved a billion or more out of US funds.

    I moved a good 2/3 of mine to foreign investments, and the growth has been spectacular.

  2. 2/3 International is definitely aggressive. Most people suggest a 20-30% International allocation. And then that amount should be allocated among Emerging Markets, Developed, etc…

    You might not have that level of granularity afforded by your 401(k) choices however.

  3. For my 401(k) and other retirement accounts I prefer indexed funds. If I want to pursue growth, I do that with other investment accounts.

  4. For those outside the US, what’s a 401(k)? My thinking is that it’s a sort of registered retirement savings plan (we call ’em RRSPs in Canada), but who knows? Does the ‘k’ stand for anything in particular?

  5. Just a silly question here but I thought you were self employed. WHat are you doing with a 401K? Shouldn’t you be stuck in ROTH IRA land?

  6. I get tons of email advice on various methods of pursuing growth, depending upon what I want grown. I try to ignore them.

  7. JD:

    I am self-employed, and I do of course have a Roth IRA (Roth is not capitalized; they’re named for a person). The 401(k) is left over from previous employers.

    Chris S:

    A 401(k) is a retirement plan in which people can contribute and their places of business can also kick in, and it’s all on a tax-deferred basis. The “401(k)” name relates to the place in the tax code in which they are specified. There’s also a 503(c) for people working for non-profits; same concept, however.

  8. My employer in Austria (Frequentis) and I do believe most European employers are not offering a 401K. If you want to save beyond normal what equals social security deductions, you have to seek retirement plans on your own. But I could be wrong. My German skills are weak and it may have been one of those words I didnt understand when I signed the contract.

  9. I know not of this 503(c) of which you speak. I work for a nonprofit, and our retirement option is a 401(k).

  10. How does a writer “retire,” John?

    Esp. one who loves it like you do.

    Maybe you give up some of the purely commercial gigs, but I can’t see you hanging up the keyboard just because you don’t need to earn a living anymore.

  11. Writers retire when people stop buying their work. If you’re lucky, it’s not an early retirement.

  12. John is almost right; 503(c) is the section of tax code that gives non-profits tax-exempt status, but it doesn’t have anything to do with retirement savings.

    401(k) was originally just for bank employees, but the IRS (US tax administrative agency) interpreted it pretty broadly, and now there’s no putting the genie back in the bottle… in this case, a pretty handy genie.

  13. Yes, the company I worked for was at the bottom of the Financial Services Industry food chain, but we were given investment classes and a great deal of choice on our 401(k) investments.

    Aggressive is what you need on the far side of 50 :)

  14. John, you’re not allowed to retire because I insist that you keep writing books for me to read. And if you don’t, I won’t give you any cookies. =)

    (Think of your future cookie-less pain…)

  15. It may be some time since I was active in the industry, but I’d think hard about putting too much into developing markets, largely because of the volatility. It really is a full time occupation keeping your eye on those balls.

    Then there is always the possibility you good people might elect a President who actually needs to care that the Dow Jones doesn’t go belly up on his shift due to the antics of his friends and supporters at large and now dead companies.

    You do write fantasy, don’t you.

  16. Three comments on your 401(k) problem:

    1.I believe that it is possible to roll Roth & 401(k) funds into a single fund. If approved by your financial or legal advisor(s), strongly suggest that you do so. Keeping track of multiple funds wastes time and triples the possibility of errors.

    2.Despite the loud shouts of enthusiasts, the best long term strategy is a balanced portfolio. The balance can be tilted toward aggressive, conservative, income, international, or whatever. The main thing is that it be balanced. Unless, of course, you can actually predict the future.

    3.Recommend that you find a broker with whom you feel comfortable (not an enthusiast!), and work with him/her. Strongly recommend that broker compensation not be on commission basis. Several large brokerage houses have excellent “personal account” management plans: Morgan Stanley ($2M minimum); Charles Schwab ($500K minimum). Also local independent brokers may be willing to work with smaller minimums.

    Good luck

    Michael Spencer

  17. Hmmm, we all would love to have a full-time writing career, and we’re giving financial advice? Run, John! Run!

    Oh, and I have one word for you: “plastics.”

  18. 1) If you take financial advice from people in your blog’s comment thread (including me), you deserve what you get (very likely: an empty retirement fund).

    2) If you take financial advice from anyone (including blog commenters) who doesn’t have a complete picture of your current holdings (cash, equities, fixed income, etc.) and your future goals/plans, you deserve what you get (see above).

    3) A writer “retires,” at least as far as the U.S. Government is concerned, at a particular age (I think it’s 65 1/2, but I’m not exactly sure). This is the age at which you can withdraw from your 401(k) or IRA without incurring a penalty. At 70 1/2, the government requires you to take a percentage of your money out of the account, in order to ensure that it receives at least some of that tax revenue they’ve let you squirrel away (they giveth & they taketh away).

  19. Martyn Taylor | January 27, 2007 04:17 AM

    I’m not sure I understand what you mean. Didn’t the Dow Jones set records this year?

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